14Jul11

Murdoch's newspaper crisis causes jitters in U.S.

When Rupert Murdoch swooped in to buy the Wall Street Journal in 2007, it sparked fears
that the venerable newspaper brand would suffer by being housed under the same roof as
News Corp's tabloids.

Those concerns have again arisen as the widening scandal over phone-hacking at Murdoch's
British newspapers threatens to spill over to U.S. shores.

"I think the UK hacking scandal has the potential to damage the Wall Street Journal's
reputation," said Jay Ottaway, whose family owned 6.2 percent of Wall Street Journal
publisher Dow Jones & Co before it was sold to News Corp.

"However, I think it would be unfair since the quality of the people and reporting at the Wall
Street Journal is much higher (than) at other News Corp newspapers and television
properties," he told Reuters by email. The Ottaway family had voted against the sale of Dow
Jones to Murdoch.

Beyond fears about contaminating the brand of one of the most-respected newspapers in the
United States, the controversy could also taint Murdoch's broader media business in the
United States, which ranges from print to television to films.

Three U.S. lawmakers on Wednesday urged the Department of Justice and the Securities and
Exchange Commission to look into whether News Corp broke a U.S. law banning payment of
bribes to foreign officials.

And some media pundits, including CourtTV founder Steve Brill, have raised questions over
whether News Corp's U.S. broadcast license could be revoked, given that federal
communications law requires owners of TV stations to be "of good character."

Another former Dow Jones owner, Christopher Bancroft, has no regrets about selling the
Journal to Murdoch.

The Bancrofts were one of the newspaper industry's most storied stewards until they sold
Dow Jones for $5.6 billion to News Corp after an internal battle that pitted family members
against one another.

"I have to thank Rupert for persisting and for buying the paper," said Bancroft. "The paper is
still very, very good and it's growing...He hasn't sullied up the paper or changed it to the point
that is unrecognizable and he's protected the franchise."

Smeared Reputation

Analysts say it's too early to tell if there will be serious damage to Murdoch's U.S. business,
but these calls raise the specter that his smeared reputation in Britain could have ramifications
stateside.

"It wouldn't surprise me at all if others call for hearings and investigations, and perhaps they
may even be held. There's going to be a lot of activity around this issue," said Jeffrey Silva,
analyst with Medley Global Advisors.

"Because News Corp's Fox network is associated with the political right, any sort of
revocation proceedings would be presented by Republicans as politically motivated and an
attack on free speech," he said, noting the issue is particularly sensitive ahead of the 2012
presidential race as Democratic President Barack Obama seeks re-election.

"It will continue to be controversial and it will fuel existing partisan fire fights, but I don't
think it will lead to revocation hearings. I don't think it will go that far," he said.

News Corp's British newspaper arm has been the focus of a widening investigation into
phone-hacking that has roiled the British political establishment.

The scandal began at the 168-year-old News of the World, which News Corp shuttered on
Sunday, after allegations that it bribed police officers for information and its journalists hacked
into the voicemail of thousands of people, including a murdered teenage girl and families of
British soldiers killed in combat.

News Corp on Wednesday pulled its bid to buy the 61 percent of British broadcaster BSkyB it
didn't already own, as outrage grew.

On Tuesday Sen. John D. Rockefeller called for an investigation of News Corp. He said that
he was concerned that "the admitted phone hacking" may have extended to 9/11 victims or
other Americans.

Senators Barbara Boxer and Frank Lautenberg joined in the call for an investigation of News
Corp.

News Corp and Dow Jones declined to comment.

Analysts said the U.S. Federal Communications Commission was unlikely to revoke News
Corp's licenses for now.

"It's possible that more facts could surface. For example, someone could bring a complaint to
the FCC that News Corp management knew about the campaign, but even so, it would likely
just be a sideshow," said Rebecca Arbogast, analyst with Stifel Nicolaus and a former division
chief at the FCC.

Arbogast said the standard for revoking a license on character grounds is high and rarely
invoked. "There's no precedent whether a British conviction would count."

Tarred With The Same Brush?

Most of the spotlight has been on Rebekah Brooks, who was editor of News of the World
between 2000 and 2003, when some of the most high-profile hacking occurred.

While some companies are contemplating pulling advertising from Murdoch's British papers,
there is little proof that they are doing the same in the United States. The Wall Street Journal
is the top U.S. paper by circulation and one of the most respected.

But attention is now turning to Les Hinton, who headed up Murdoch's British newspapers
during the scandal, and is now chief executive of Dow Jones.

"How could it not be a concern?" asked Doug Arthur, a long time newspaper analyst now
with Evercore Partners, about the potential impact to the Wall Street Journal brand.

"I think the benefit of the Journal is it's above the fray. It's carved out such a strong reputation
for so long," he said, but added, "You cannot completely separate it from the muck."

[Source: By Jennifer Saba and Jasmin Melvin, Reuters, New York and Washington, 14Jul11]

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